The thing that will carry the stock market in the long term is jobs. That’s it. Everything else is a precursor or indicator for job creation. Everything rides on it, including your investments.
It’s hard right now because you can’t find good stocks to invest in based on their inherent value. You can, but so much of their valuation and future growth prospects rely on the state of the economy right now.
The stock market tracks the economy. When there is high confidence that the economy will grow, the stock market responds with a rally. If the economy doesn’t look good, like we’ve been seeing recently, then stocks will react adversely. Your long term investment strategies will ultimately rely on how the economy fares.
We are currently experiencing what’s called a jobless recovery. Those don’t last for too long. Productivity is increasing, which is boosting our GDP, but still no jobs. That means companies are investing in infrastructure and technology to become more efficient, without hiring more workers.
The jobs market still looks bleak. There was a bit of false optimism that came with successively positive numbers, but recent quarters have been disappointing. Many point to the disaster in Japan as having been the culprit, but I can’t imagine that it would affect the unemployment numbers that much.
In any case, watch the stocks you invest in closely. Its value and price is very closely related to the jobs numbers that come out. There are very high correlations right now and you can’t ignore it. If you do, it will be at your own peril as an investor.
This is especially true for domestic companies that don’t have much overseas exposure. That means they are locked into a stagnant economy with not much prospects for significant growth anytime soon. So watch them closely and know your reasons for putting your money in domestic companies.